By: Leonardo Gasparini (CEDLAS, Universidad de La Plata)
Nora Lustig (Tulane University and Center for Global Development)
Concluding remarks The income distributions in Latin American countries went through two distinct phases in the last three decades. During the 1980s and 1990s they became more concentrated. In several countries (though not in all) the increase in inequality during this period was associated with macroeconomic crises and market-oriented reforms in a context of weak labor institutions and social safety nets. From the late 1990s/early 2000s income inequality in Latin America has declined. Two main factors appear to be behind this phenomenon: a fall in the earnings gap of skilled/low-skilled workers and an increase in government transfers targeted to the poor. The fall in the earnings gap, in turn, is due to a wide set of factors, including the improved macroeconomic conditions that fostered employment, the petering out of the one-time unequalizing effect in the labor market of some market-oriented reforms in the 1990s, the expansion of coverage in basic education during the last couple of decades, and stronger labor institutions. Probably due to the improved fiscal situation and the increased concern on social issues, most Latin American countries augmented social spending and in particular adopted or expanded conditional cash transfers programs. The evidence suggests that these programs are well targeted on the poor, and are thus highly progressive. In spite of this undeniable progress, Latin America still remains a region with very high income inequality, in which governments redistribute relatively little through taxes and transfers. Despite the evident progress in making public policy more pro-poor, a large share of government spending is neutral or regressive, and the collection of personal income and wealth taxes is relatively low. In order to continue on the path towards more equitable societies, it is crucial that public spending is made more progressive and efforts are redoubled to improve access to quality services (education, in particular) for the poor.